The influx of European carmakers into South China, long a market dominated by the Japanese, is bringing stepped-up investment from major European and North American auto-systems suppliers.
U.S. supplier Johnson Controls Inc., for example, is building factories with injection molding capabilities in Guangzhou and Changsha, while France's Faurecia SA is currently building four factories in Guangdong to serve new assembly plants under construction there by Volkswagen Group and PSA Peugeot Citroën.
The investment is driven by the growing importance of the local market in South China, which has traditionally been dominated by Japanese carmakers and their supply base after they began building joint venture assembly plants in Guangzhou in the late 1990s, said Yale Zhang, managing director of consultancy Automotive Foresight (Shanghai) Co. Ltd.
But the growing local market has now prompted European automakers to start building there, and that's drawing suppliers from their home markets to add to the solid base of Japanese suppliers, Zhang said.
“You really can't miss that market if you want to keep the No. 1 or No. 2 spot in manufacturing scale in China,” he said. “You can't just give up the area to the Japanese.”
The new investment by European automakers is substantial.
Volkswagen is building a 300,000-car-a-year assembly plant in Foshan to open in 2013, as part of its joint venture with China's First Automobile Works. PSA Peugeot Citroën and China's Changan Auto Group Co. Ltd., as well, are building a 200,000-vehicle assembly plant to start in mid-2013 in Shenzhen, next door to Hong Kong.
Italy's Fiat Group Automobile SpA and Guangzhou Automobile Group Company Ltd. are building a vehicle-assembly plant in Changsha. And Chinese carmaker BYD Inc., which is minority-owned by U.S. investor Warren Buffet, is headquartered nearby in Shenzhen.
“Eventually you will see a lot of suppliers follow,” said Zhang.
Johnson Controls, with automotive operations based in Plymouth, Mich., said the affluence of South China has made it one of the country's largest markets, with Guangdong Province accounting for 13 percent of passenger car purchases in China in 2011.
JCI set up a joint venture with Guangzhou Automobile Group Co. Ltd. in 2008, and said it also sees opportunities working with local carmakers like Guangzhou Auto as they try to develop their own brands.
“Though Guangzhou isn't a traditional motor town, like Changchun or Shanghai, its government is putting [in] a lot of effort to develop a high-tech, complex manufacturing industry,” said JCI, in an emailed response to Plastics News questions.
“In addition to the government policies, the presence of a big local market, combined with the entrance of multiple international OEMs, has transformed Guangzhou into one of the biggest automobile towns in China,” JCI said.
Volkswagen in particular has emphasized the region since 2009, when it launched what it calls its “South China strategy.” The carmaker said its sales had lagged in the region, compared with elsewhere in China, and it wanted to correct that imbalance.
“Since the Volkswagen Group came to China more than 30 years ago, it has been the market leader in most parts of China — except for the South,” the company said.
VW and its Chinese joint ventures, FAW Volkswagen and Shanghai Volkswagen, for example, had only 10 percent market share in South China in 2010, compared with a 17 percent market share across China, according to Chinese press reports.
But VW said that in 2011 its market share in South China had climbed to 15.8 percent, and its growth there was exceeding the national average.
VW said one of its key targets was to triple sales in South China from 150,000 units a year to more than half a million vehicles.
“Our strategy has already paid off — for the first time in history, Volkswagen Group has surpassed the key competitors and the traditional market dominators in Hong Kong,” the company said. “Today Volkswagen is No.1 in the Hong Kong market as well as in South China.”
The new FAW-VW factory in Foshan was the key reason cited by Nanterre, France-based Faurecia for building three factories in Foshan with its Chinese partner, Changchun XuYang Industry (Group) Co. Ltd.
Two of the factories, for seating and interiors, will be held 60 percent by Faurecia and 40 percent by Changchun-based XuYang, while a soft-trim plant will be owned 60 percent by XuYang and 40 percent by Faurecia, the French company said in a June 2011 announcement.
Faurecia owns 18.75 percent of XuYang.
Faurecia also announced in March that it was building another factory in South China, in Dongguan, to make parts for the new PSA Peugeot Citroën-Changan Motors joint venture in Shenzhen.
That 215,000-square-foot factory will house three Faurecia units: interior systems, automotive seating and emissions-control technology.